Role of CFO and capital budgeting decision
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I need assistance with the attached two part assignment. I have also attached an example Spreadsheet.
References:
http://www.12manage.com/methods_npv.html
Do you think finance departments are the best place to train future CEOs?
Include a discussion of both the pros and cons of hiring a CFO to be CEO. Try to cite at least three articles in your paper in support of your arguments in favor of and against hiring a CFO to be a CEO. Remember to include a reference list and to refer to the articles you use in the body of your paper.
Please read the articles below, which are both available in Proquest.
Brewis, J., (1999), How a CFO can graduate to CEO, Corporate Finance; London.
Picker, I., (1989), Do CFOs Really Make Good CEOs, Institutional Investor; New York.
Concepts of present value and application to certainty cash flow
Note: It is recommended that you use a spreadsheet such as Excel in order to solve the following problems. See example for the computations using Excel spreadsheet here.
1. Suppose you have two bank accounts, one called Account A and another Account B. Account A will be worth $4,700.00 in one year. Account B will be worth $7,900.00 in two years. Both accounts earn 3.8% interest. What is the present value of each of these accounts? What is the present value of the two accounts together?
2. Suppose you just inherited an oil field. This oil field mine is believed to have three years worth of oil deposit. The net income this oil filed is projected to bring you each year for the next three years:
Year 1: $26,000,000
Year 2: $64,000,000
Year 3: $57,000,000
Compute the present value of this stream of income at a discount rate of 6%. You are to arrive at the present value for a whole stream of income, i.e. the total value of receiving all three payments. This is actually the value of the oil filed.
You compute this by computing the present value of each component of the cash flow (each year's proceeds) with regard to the time you receive the amount, and then add together the three present values in order to get the present value of the oil field. (See the example in the spreadsheet).
Now re-compute the present value of the income stream from the gold mine, or the value of the oil field at a discount rate (or cost of capital of the company) of 12%. Re-compute it again using a discount rate of 10%, then at 8%, 6%, 4% and 2%. Compare the present values of the income stream under the different discount rates.
Show your calculations and write a short paragraph with conclusions from the computations.
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Solution Summary
This solution has got two parts. First discusses the Role of CFO and the second one discusses the steps to analyze the capital budgeting decision with the help of few examples
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Part I: The Chief Financial Officer
The Chief Financial Officer (CFO) of an organization has responsibilities that include internal financial control of the organization, financial reporting (external financial accounting), financing the organization, assessment of the capital budgeting process and an array of additional responsibilities. The CFO must have an external orientation: After all, the company is owned by its shareholders and if the company is to operate so as to raise the value of the shares it must consider not only the internal structure of the organization, its products, competitors etc., but the interaction between what the company 'does', and the way the 'market' evaluates its performance. It is the combination of the two that plays a roll in affecting the market price of the shares and shareholders value. The persons who must have an eye on this is usually the CEO and the CFO.
Read the two articles below, look for newer articles on the subject by browsing the web and then write a two-page paper answering the following question:
Do you think finance departments are the best place to train future CEOs?
Include a discussion of both the pros and cons of hiring a CFO to be CEO. Try to cite at least three articles in your paper in support of your arguments in favor of and against hiring a CFO to be a CEO. Remember to include a reference list and to refer to the articles you use in the body of your paper.
Please read the articles below, which are both available in Proquest.
Brewis, J., (1999), How a CFO can graduate to CEO, Corporate Finance; London.
Picker, I., (1989), Do CFOs Really Make Good CEOs, Institutional Investor; New York.
Role of CFO
CFO plays a very important role in the success of the company. He not only manages the funds in an appropriate manner but also raise them in the most efficient manner. He takes four important decisions:
? Investment or Long Term Asset Mix Decision
? Financing or Capital Mix Decision
? Dividend or Profit Allocation Decision
? Liquidity or Short Term Asset Mix Decision
Thus CFO plays an important role in raising capital from the capital markets. A finance manager is concerned with what is going to happen in the future. He takes critical decisions that will affect the future of the company. These are based on various calculations and assessments. This is not easy because there are many uncertainties in financial management
Role of CEO
CEO has to be a good leader. Leadership is defined as the ability to lead and inspire people towards a common goal. This quality is very important because it can determine the success or failure of an organization. If the objectives and goals of the people are not aligned with the company's mission and vision, this will have detrimental impact on the financial bottom-line and eventual survivability of the company.
As a CEO he has to satisfy all the stakeholders of the firm so that they can make important decisions. These users include investors, creditors, management, governmental agencies, labor unions, and others. ...
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